The US bank JPMorgan has raised their recession probability to 60% with its chief economist Bruce Kasman calling these tariff increases the largest tax hike since 1968. He went on to warn that the possibility of them being fully implemented as a substantial macroeconomic shock which has raised the prospect of a global recession significantly.
The non-partisan Tax Foundation thinktank has estimated that the plan would represent a “$1.8tn tax hike” for US consumers and is likely to cause imports to fall by more than a quarter, or $900bn, in 2025.
Deutsche Bank is predicting that US economic growth this year could be less than 1%, while prices could be a third higher.
Global financial markets have been in turmoil since the announcement, and they have been further impacted by China’s decision to retaliate with additional tariffs of 34% on all US goods from April 10, sending a ‘jolt of fear’ through the markets.
We’re yet to see what the European Union will do but the EU, Japan, and India are all very likely to retaliate. So, there are growing concerns that we will start to see is an escalating spiral of tariffs. The IMF has warned against retaliation but is it any surprise that countries are drawing up counter measures?
The impact on business sentiment is going to be significant and the disruption to supply chains even worse.
China described the US’s decision as, “not in line with international trade rules, and is a typical unilateral bullying practice.”
Many believe, or are hoping, that Trump plans to use the imposition of tariffs to start a series of negotiations with countries looking to reduce the tariffs that have been imposed, but any form of negotiation could drag on for months adding to uncertainty during that period.
Politically, Trump is centralising power in the executive branch of government, and he’ll be able to raise and cut tariffs on a whim, seeding the ground for government corruption in the process.
China’s decision to retaliate suggests a sharp escalation of the tariff war could be about to occur and while the UK may have been dealt a slightly better hand than most, it’s not going to avoid being slammed by the growing turmoil we’re seeing in the global economy.
